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Are Apartment Renters Willing to Pay More for Green Features?

It’s hard to prove that renters are willing to pay more to live in “sustainably developed” apartments—but circumstantial evidence that this is the case keeps piling up.

Renters now explicitly say they are willing to pay more to live in apartment buildings with sustainable design features, from energy-saving appliances to bike rooms, according to the latest survey from the National Multifamily Housing Council (NMHC). Renters are also willing to pay extra to live in “sustainable” neighborhoods, where they don’t have to drive to get to amenities like shopping and services, according to a February study from data firm Axiometrics.

But it’s more difficult to prove by looking at actual apartment rents that apartment residents consistently pay a premium for sustainable design certifications or features like energy efficiency.

New apartments tend to be green

The latest generation of building codes requires new apartments to be much more energy-efficient than older construction. As a result, the data on rents tends to simply show that renters pay more to live in new buildings—which everyone already knows. Those new buildings also tend to be loaded with sustainable design features, including extra insulation and “green” windows.

“In most cases, just following local building codes gets you to the equivalent of some sort of green certification,” says Greg Willett, chief economist for MPF Research, an apartment market intelligence firm. “We’re not really building new product that isn’t highly efficient.”

Older apartment buildings are much more difficult to renovate to meet tough, new green building standards. “Most renters live in buildings that are more than 10 years old and were not constructed to these standards,” says John Sebree, director of the national multi housing group with brokerage firm Marcus & Millichap.

Anecdotal evidence from developers and property managers shows renters often expect their homes to be as energy efficient as possible—even if the building is far from meeting any recognized standard for sustainable design. “Many of the Millennial population expect the owner or manager of the property to implement as many of these environmentally conscious initiatives as possible,” says Sebree. “Tenants are expecting recycling, bike rooms, water-saving appliances, etc.”

Renters who live in class-B and class-C buildings may be especially concerned with sustainable design features like energy efficiency, provided they pay for their own utilities. “The residents of those class-B and C properties simply have the tightest overall budgets and, thus, tend to be more sensitive to the size of utility bills,” says MPF’s Willett.

Renters pay for sustainable neighborhoods

Sustainable development includes more than just extra insulation. Green design also recognizes the value of housing that is located within easy walking distance of amenities like shopping and transportation.

That’s a sustainable development feature proven to earn higher rents, according to a February study by Axiometrics of apartment sub-markets in Dallas and the San Francisco Bay Area.

“Sub-markets with the highest-ranking Walk Scores in the market tend to have the highest average rent per unit,” according to Axiometrics. (Walk Score is a nationally-recognized walkability rating system created by WalkScore.com.)

“I definitely believe renters will pay for a high Walk Score,” says Sebree. “An increased number of tenants [wants] to live close to shopping, jobs and entertainment.”

Once again, new apartment developments are much more likely than older buildings to meet these requirements. “During this economic cycle we have seen a much higher percentage of new construction in urban or mid-town neighborhoods,” says Sebree.

Renters say they are willing to pay

If you ask people who live in rental apartments, they say they are very willing to pay more to live in apartment communities built sustainably, according to the latest Resident Preferences Survey, conducted every year by NMHC.

Survey respondents say they are willing to pay an extra $32.64 a month in rent to live in an apartment building that has earned a “green building” certification such as a Leadership in Energy and Environmental Design (LEED) from the U.S. Green Building Council. Three quarters of all respondents—75 percent—said they were “interested” or “very interested” in these “green” certifications. The certifications can even be the deciding factor for some potential renters.

“There is definitely a small segment of the renter population who will make a decision based on the LEED Certification,” says Sebree.

Just to compare, the extra money that renters are willing to pay for a LEED certification is a little less than the extra $41 a month they are willing to pay for a fitness center and a little more than the extra $32 a month they are willing to pay for parking, according to the NMHC survey. Renters are also willing to pay an extra $31 a month to live in a building that includes “sustainability/green initiatives” and will pay an extra $26 a month to live in a building that recycles, according to the survey.

Marketing also matters. About 43 percent of respondents said that to appeal to them, the websites of apartment communities should include information on how sustainable features were used in the apartments’ development.